Beach-house bargains

Thanks to the real estate crash, these days you might just be able to afford that condo by the sea. Here's where to shop.

(Fortune Magazine) -- Three years ago, while writing for Fortune's sister publication Money, I embarked on what seemed like an oxymoronic (or maybe just moronic) quest: to find
affordable beach houses at a time of real estate insanity. Beachfront prices were soaring, which made my mission - finding vacation getaways right on the ocean for less than $500,000
- seem like a long shot.

In the end, I did find a few beach locales where bargains still existed, such as North Padre Island in Texas and Prince Edward Island in Canada (see "The Last Affordable Beach House"). For the most part, though, my travels confirmed what the
experts had warned me going in: The beach-house retirement dream is out of reach for many upper-middle-class Americans. "We get calls all the time from people who say that all they
want is a little house on the beach - nothing too fancy," one real estate agent told me. "It's heartbreaking, but the problem is that even those homes come with a fancy price tag."

Three years and one real estate crash later, the beach-house market has changed. Prices are coming down, especially in America's vacation-home capital of Florida. But so far the
correction hasn't been nearly as dramatic as prospective buyers might hope.

Paul Grover, a top Cape Cod real estate agent based in Osterville, Mass., tells me the story of a well-heeled buyer who came to him looking to spend up to $4 million for a big home
with a tony address and a lawn that backs right up to the beach. Unfortunately, the starting price for such a house on the cape is closer to $8 million than $4 million. "There are a
lot of buyers expecting to find bargains," says Grover, "but the bargains generally aren't out there."

Part of the problem is that the folks who can afford homes right on the beach are, for the most part, those least affected by the economic downturn. In the Hamptons - summer home to
New York City's upper crust - you won't find many desperate sellers. "It's a totally different mentality," East Hampton real estate agent Diane Saatchi says of her clientele. "The
value of their real estate is just so insignificant compared with their overall wealth."

So where are the beach bargains these days? I posed this question to two of the most active vacation-home buyers in North America - Cathy Ross, executive vice president for real
estate with Exclusive Resorts, and Richard Keith, CEO of Private Escapes.

Exclusive Resorts and Private Escapes are leading "destination clubs," which are essentially luxury time-shares for the well-to-do. (Members pay a six-figure membership fee, plus
annual dues, and are entitled to use the clubs' stable of luxury vacation homes for several weeks a year.) Ross says she sees "great value" right now in Hawaii, where prices have
fallen some 10%. Keith is finding deals in the Caribbean archipelago of Turks and Caicos - particularly the Grace Beach section, where developers overbuilt during the boom.

One market where both Ross and Keith see buying opportunities galore is Florida. The best Florida bargains are in condominiums. Kerry McNulty, a real estate agent in the Panhandle
resort town of Destin, says Panhandle prices have fallen 25% to 30% since 2005. A two-bedroom beachfront condo that might have sold for $600,000 in 2005 can now be had for $425,000,
he says.

But before booking a flight to the Sunshine State to start your bargain hunting, consider the risks. The Florida market may have further to fall. Property taxes and insurance bills
are soaring. And if you're a believer in the devastating impact of global warming (I'm a tad skeptical, but that's another column), an investment in property on the Gulf or Atlantic
coast probably isn't for you.

Not only is the hurricane risk higher, but the three-foot rise in sea level predicted by most experts would swamp most Florida beaches, according to real estate consultant Climate
Appraisal Services. (The West Coast and the New England coast fare best in CAS's computer models, the Gulf Coast the worst.) David Purcell, an ex-banker who founded CAS in 2006 with a
trio of University of Arizona scientists, views Florida beachfront as an incredibly risky investment. "Twenty years from now," Purcell says, "if you're looking to sell, you may find
there's nobody willing to step into your shoes."